analyzes how compensation schemes change in reaction to anticipated bail-outs. If there is a risk-shifting problem, bail-out … becomes flatter and effort decreases. If both types of agency problems are present, a sufficiently large increase in bailout … perceptions makes it optimal for a welfare-maximizing regulator to impose caps on bank bonuses. In contrast, raising managers …

corroborate these findings to reveal more pronounced effects when fund managers have stronger career incentives and are less …